N.J. hospitals 'barely scraping by'

The perenially shaky finances of the state’s hospitals weakened even further after the recession hit, paring their combined profit margin to just 0.2 percent in 2008, the New Jersey Hospital Association said Wednesday.

That was the lowest margin since 1999 and a sizable drop from the 1.3 percent margin in 2007, according to the report.

“Many hospitals — far too many — are barely scraping by,” said Betsy Ryan, NJHA president and CEO. “They have long endured woefully inadequate payments from government and insurers for the care delivered to New Jersey residents. Now, with the added burden of the recession, New Jersey has a state full of hospitals teetering on the edge.”

The figures were particularly grim for several subgroups of hospitals that showed negative margin figures, meaning they were in the red at the end of the year. Rural hospitals had losses of 2.6 percent, inner city hospitals a loss of 0.4 percent, and urban hospitals a loss of 0.2 percent.

Gerard Jablonowski, CEO of Trenton’s St. Francis Medical Center, noted that his urban hospital is also in the category of small facilities with less than 200 beds, a group that saw a staggering 3.8 percent loss statewide in 2008.

He said St. Francis was slightly in the red in 2008 and would show a similar figure in 2009, a result he attributed to Medicaid, Medicare and state charity care payments that cover less than the full cost of treatment, as well as a growing number of uninsured patients.

“As unemployment increases, people lose benefits and become eligible for Medicaid, or, many people are underemployed — they pick up jobs without benefits,” he said. “It’s making it difficult for many hospitals to reinvest in their facilities because the margins are so slim.”

St. Francis has been able to keep its expenses down and has been supported by its parent organization, Catholic Health East, but has not been able to make all the improvements to its aging building that he would like, Jablonowski said.

Operating or profit margins measure how much money an organization has left after balancing its operating revenues and expenses. The hospital association said more than 42 percent of the state’s hospitals ended 2008 in the red.

Robert Wood Johnson University Hospital Hamilton said it too has struggled to cover the cost of uncompensated care, which amounted to $15 million or 7 percent of its operating costs last year.

“Due to the challenges of health care reimbursement and the economy, we anticipated that we would not have a positive margin last year,” senior vice president Diane Grillo said in an e-mail. “Through careful planning and stewardship of financial resources we were still able to meet the health care needs of our community.”

“Our leadership team has taken several necessary measures to improve financial performance, including revenue cycle enhancements, expense reductions and the development of a plan that positions us for long term viability,” she said.

In addition, RWJ finished building a new tower with private patient rooms more than two years ago and is not taking on additional long-term debt, Grillo said.

When gains and losses from investments are factored in, last year’s meltdown of the financial markets helped drive the state’s hospitals’ total margin down to negative 14.1 percent from a 2007 figure of 0.9 percent. The cost of borrowing to upgrade or build new facilities contributed to that sharp decline, an NJHA spokeswoman said.

Locally, Princeton Healthcare and Capital Health are building new hospitals. A Capital Health spokeswoman said the organization had dodged some of the impact of the recession by obtaining federal government backing for a $756 million mortgage this year.

“Very recently, we met the very high standards of the Department of Housing and Urban Development in order to obtain the financing for construction of our new hospital and the renovations at Fuld hospital, so I think that speaks for itself about our financial performance,” spokeswoman Jayne O’Connor said. “By virtue of doing that, we reduced our borrowing costs.”

“We continued to perform according to our projections,” she said.
Princeton Healthcare, which operates the University Medical Center at Princeton, did not respond to a request for comment.

The New Jersey Hospital Association noted that the state has already experienced a rash of hospital closures and bankruptcies in recent years. Since 2007, nine acute care hospitals have closed and six have filed for bankruptcy.

The association noted that Medicaid reimburses hospitals an average of just 66 cents for every dollar of care provided, Medicare pays 89 cents, and the state’s charity care program pays 42 cents.

“New Jersey’s low reimbursements left our hospitals with a very shaky foundation,” NJHA senior vice president Sean Hopkins said. “And now that foundation is crumbling even further as hospitals fight to recover from the economic downturn.”